3 things we learned from Jeff Bezos’ Amazon annual shareholder letter

Every year Amazon Founder and CEO Jeff Bezos releases an annual letter to Amazon shareholders to accompany the company’s Annual Report. Bezos has just penned his 2018 letter to Amazon shareholders. It provides investors with some interesting insight into how the company is performing and where Bezos wants to take them next. Here is a summary of Jeff Bezos’ 2018 Amazon shareholder letter and 3 things we learned from it.

1. Independent third-party sellers are of huge importance to Amazon

Amazon allows third-party sellers to list products for sale on its website in return for fees. These third-party sellers are independent of Amazon. They choose to manage the delivery of orders themselves or utilise one of Amazon’s fulfilment centres. These centres process and dispatch orders on the seller’s behalf. It’s often not particularly obvious when you are buying direct from Amazon or from a third-party as the ordering process through the website is identical.

In his 2018 letter to Shareholders Bezos reveals that third-party sales now represent 58% of physical Amazon sales. This has grown steadily year-on-year having represented just 3% in 1999. This growth is despite Amazon’s own first party sales growing from $1.6 billion in 1999 to $117 billion in 2018.

Sales from third-party sellers are now outperforming Amazon’s own first-party sales of physical products. This demonstrates just how important these sellers are to Amazon’s business and their continued dominance of the online retail market. It’s evident that Bezos is well aware of this.

2. Amazon sees a future for physical retail stores

Amazon are well-known for disrupting the retail market and in particular, high-street shopping by fuelling the growth of online shopping. Despite this, in the shareholder letter Bezos claims “Amazon today remains a smaller player in global retail”. This is a surprising and somewhat humble description of a business that has grown from the garage of Jeff Bezos into a business that generated a mammoth $232 billion dollars in net sales in 2018.

Bezos goes on to claim that 90% of the retail business remains offline in traditional bricks and mortar stores and gives an indication Amazon intend to grow their physical presence to compete on this front. There is a nod towards Amazon Go, their checkout-free stores with 10 branches now up and running across San Francisco, Chicago and Seattle. These stores rely on technology including the Amazon app, cameras and sensors to manage the shopping experience. Bezos remarks that he is “excited about the future” of these stores. As traditional retailers have moved to invest in their online offering Amazon now appear to be looking to move away from relying on just online retail.

3. Expect more experiments and failures from Amazon

In the Amazon shareholder letter Bezos suggests that as a business grows it should be expected that the size of failures also grows. He indicates Amazon will continue to invest and experiment in new products and markets. Bezos points to the learning Amazon were able to take forward into the building of the Echo and Alexa from the failure of the Amazon Fire phone.

Bezos makes a bold claim that “market research doesn’t help”. He suggests he would have had some funny looks in 2013 had he started asking customers if they wanted a “black, always-on cylinder in your kitchen about the size of a Pringles can that you can talk to and ask questions, that also turns on your lights and plays music”. Low and behold we have the Amazon Echo.

Perhaps this is an example being used to tame investors in anticipation of big investments into risky, unproven concepts. Based on these comments we can expect that Amazon will continue to seek to be at the cutting edge of technology changes, attempting to develop products before customers even know they need them.

Conclusion

In summary, it’s clear Bezos isn’t content with standing still and intends on seeing Amazon continue to grow through developing new products and moving into new markets all whilst exploiting advances in technology.

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